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ITC stock fell 7% on Saturday, registering its largest single-day decline since July 2017 and also finished as the biggest laggard on the Sensex.
“This will require
to increase prices by 10 to 15%, in a very weak macroeconomic environment leading to a sharp drop in single-digit volumes. Even after experiencing price increases of more than 10 percent, cigarette EBIT is expected to remain stable at best in FY21, â€said Credit Suisse.
ITC’s cigarette business, which accounts for three out of every four cigarettes sold legally, saw revenue growth of 4.7% in the December quarter to Rs 5,310.98 crore. The company’s net profit for the period rose 29% to Rs 4,141.93 crore, beating Street estimates.
Brokerages Phillip Capital and Edelweiss lowered the action as a result of the budget, estimating a 6-7% increase in cigarette prices by the ITC.
“The NCCD component has been multiplied by 2 to 4 for all sizes of sticks. This resulted in tax increases of around 9 to 15%. The tax increases, in effect, at the portfolio level are likely to be around 11%, which means the company would have to increase the MRP by 6-7% to compensate for the same, â€Edelweiss said. , demoting the ITC to “hold” to “buy” with a target price of Rs 250 on the stock.
The government announced a tax hike on cigarettes after a two-year benevolent stance in order to support its public treasury and close a growing budget deficit.
“We believe that ITC will have to experience a price increase of at least 6-7% on a weighted average basis, even if it has to maintain an EBIT in INR similar to what it will deliver during FY20 . ITC volume growth for FY21 is likely to impact all lengths, with maximum impact on DSFT due to a sluggish economic environment and increased competition from GPI and VST Industries †, said Phillip Capital. The brokerage has downgraded the stock to “neutral” and has a target price of Rs 215.
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